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On January 1, Weatherholt Inc. issued $5,000,000, 9% bonds for $4,695,000. The market rate for these bonds is 10%. Interest is payable annually on December 31. Jean Weatherholt uses effective-interest method of amortizing bond discount. At the end if the first year, Weatherholt should report unamortized bond discount of $285,500 $274,500 $258,050 $255,000

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mltn1980

Answer:

  • At the end if the first year, Weatherholt should report unamortized bond discount of

$285,500

Explanation:

The entry to record the bond issuance is as follows:

On January 1    

It the moment of the bond issued the company register:    

 Debit  $4,695,000  Cash  

 Debit  $305,000  Discount on Bond Payable  

 Credit  $5,000,000  Bonds Payable  

Bond Discount: $305,000

At the moment of the first interest payment:

Interest Payment Stated: $450,000 = 9%*$5,000,000

Interest Market Rate 10% by Book Value Bond:

10% * $4,695,000 = $469,500

Amortization of Bond Discount: $469,500 - $450,000 = $19,500

  • Debit Balance in the Account Bond Discount:

$305,000 - $19,500= $285,500

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